Photo credit: Max Phillips (Jeremy Buckingham MLC) Photo: Shale gas pipes, Pennsylvania USA by Beyond Coal and Gas
Despite starting to explore the area in 2010-2011, Petróleos Mexicanos (Pemex) will not be able to tap into the Mexican Eagle Ford Shale for decades. In addition to focusing on less risky shallow-water project, Pemex cannot afford the higher costs associated with more wells, labor and skilled training.
Mexico is the sixth largest potential natural gas supplier. However, it has been catering to local demand by importing liquefied natural gas (LNG) from the Middle East and Africa for four times the rate set in North America. Considering the fact that the Eagle Ford shale in Mexico contains 343 trillion cubic feet of shale gas and the country overall has 680 trillion cubic feet, the situation has been deemed “frustrating”.
Without lower-priced domestic natural gas, electricity prices have gone higher. This in turn has affected the country’s manufacturing sector, which was expected to thrive due to the cheaper labor and lower export prices. Low fuel prices in the US set a hard competition for manufacturing facilities in Mexico. However, the potential of renewable sources in Mexico could balance a little bit the situation.
If Mexico agrees to fully open up to foreign expertise, it may discover unconventional drilling techniques like hydraulic fracturing. Also known as “fracking”, this technique has helped the US achieve a shale gas boom and reduced its natural gas imports. However, Mexico isn’t offering any incentives to private or foreign companies. Currently, private companies can be involved in Mexico’s energy sector via services contracts. Through these contracts, they will get paid for the services they render, but will not own any reserves. Such clauses aren’t tempting enough to influence investment in shale resources, which are currently dominated by smaller companies.
Pemex has only awarded three of six blocks in the July 2013 auction, disappointing many investors. However, failure to award three blocks wasn’t as peculiar as the way other firms won theirs. The Humapa block was awarded to Halliburton for $0.01 billion despite Pemex setting a maximum price of $6.50 billion. Similarly, Weatherford and Petrolite were awarded the Miquetla and Soledad for $0.98 billion and $0.49 billion respectively. Pemex had set the maximum price of Miquetla at $6.5 billion while Soledad’s was $6 billion. Experts predict that Pemex has taken this step to protect its interest as the contracts aren’t going to see their 30-year life when energy regulations change.
President Enrique Peña Nieto currently has the votes he needs to open up the energy sector after 75 years. Voting will be held before December 15 while a secondary legislation will pass by February 2014. However, according to Ariel Ramos, a partner with Haynes and Boone, US companies will be at a position to provide the needed expertise when Mexico’s shale gas plays are ready and developed.
If Mexico developed 2,500 wells annually, it will become self-sufficient by 2020. On the other hand, at 5,000 wells per year, its gas production would increase and Mexico may become a key exporter in North America and Central America. Mexico will release, by end of year, its Energy Plan, and by Q114, its Renewable Energy Plan. Will this change strategy on natural gas?